Warren Buffett: My Strategy For Investing In Banks

During the 2008 Berkshire Hathaway Annual Meeting, Warren Buffett discussed his strategy for investing in Banks. Here’s an excerpt from the meeting:

WARREN BUFFETT: Yeah. I don’t think you should make a categorical decision about something like — however you define them — small, mid cap, whatever, regional, or national banks for that matter.

So much depends on the character of the institution, which will probably be a reflection, to a great degree, of the type of CEO you have.

And I — a bank can mean anything. It can — you know, it can mean an institution that’s doing all kinds of crazy things.

It can — there was one called the Bank of the Commonwealth up in Detroit many years ago that went to extremes, and it was very popular on Wall Street for a while.

It could mean the soundest of institutions. We had one — we owned a bank — the only bank Berkshire’s ever owned in its entirety — in Rockford, Illinois, run by a fellow named Gene Abegg.

And, you know, it wouldn’t make any difference whether it was a super-regional or a regional or a small or a mid-cap bank, there’s no way Gene Abegg could run anything other than a super-sound bank.

So I don’t think you should — I think you should know something about the culture of the management and the institution to make a firm buy decision on a bank, and that’s hard to do for 99 percent of the banks.

We own stock, as you know — it’s in our report — Wells Fargo and U.S. Bank and M&T up in Buffalo. And in all three cases, I think I understand quite well the DNA of the institution, in terms of how it behaves.

That doesn’t mean those places are immune from problems, because they’ll have problems.

But it means — but it does mean — they’re immune, in my view, from what I would call institutional stupidity. And I would not say that all banks are immune from that.

As a matter of fact, there was a very wise man named — I think it was Morris Cohen (Morris Schapiro) — that said, “There are more banks than bankers,” and if you think about that awhile, you’ll get my point. (Laughs)

Charlie?

CHARLIE MUNGER: Well, I think the questioner is onto something.

So many of our very large banks, both here and in Europe, have sort of cast a pall of disgrace over the whole industry, and that is undoubtedly pounded down the stocks of some small banks that there’s nothing at all wrong with.

So I think you’re prospecting in a likely territory.

WARREN BUFFETT: Yeah, but you can find a few big banks —

CHARLIE MUNGER: Yes.

WARREN BUFFETT: And it — I don’t know if you took the 20 smallest banks in Florida and the 20 largest banks in Florida which group would be in better shape, in terms of the Florida real estate situation.

CHARLIE MUNGER: It’s a territory that has some promise. (Laughter)

WARREN BUFFETT: That is a wildly bullish statement from Charlie. (Laughter)

You can watch the entire discussion here: